Question of centralization faces growing crypto insurance industry
Categories: Crypto News US
Cryptocurrency markets have been maturing over the last few years, making demand for crypto insurance solutions larger as more advanced players dip their toes into the nascent ecosystem.Investopedia reports that cryptocurrency insurance is seen as a “big opportunity,” with a spokesman from one of the world’s largest insurers, Allianz, saying that the company has explored product and coverage options in the cryptocurrency space as it becomes “more relevant, important and prevalent on the real economy.”The cryptocurrency ecosystem is still seen as dangerous and volatile, where funds aren’t completely secure even on leading cryptocurrency exchanges. While some platforms, including Coinbase, have revealed they have hot wallet coverage via specific insurers, most don’t publicly promote whether assets deposited there are insured. Demand for insurance in the space is nevertheless present, as crypto exchange Crypto.com has expanded its insurance program to cover $750 million in 2021, and decentralized solutions based on decentralized autonomous organizations (DAOs) like Nexus Mutual have been created.Many users, Vogel said, aren’t comfortable with the responsibility of handling the security of their coins themselves. As a result, the market has been developing “custody-type solutions, where a trusted company acts as a form of crypto bank.” Insurers could provide clear guidelines that custodians need to follow to qualify for insurance here, he said. The move could provide familiarity to investors in the space. As Lees said, most are aware of the Financial Services Compensation Scheme of up to $104,000, or 85,000 Great British pounds in the United Kingdom, or the Federal Deposit Insurance Corporation’s coverage of up to $100,000 in the United States.Centralized entities like Allianz entering the space would only further support the notion of familiarity. Johnny Lyu, CEO of cryptocurrency exchange KuCoin, told Cointelegraph that while the crypto ecosystem needs insurance, in its early stage of development most participation will come from centralized institutions.As the industry develops, Lyu said that decentralized alternatives are gradually improving. Whether these platforms can be truly decentralized, he said, will “depend on the development and improvement of the crypto environment at large.” For now, both centralized and decentralized entities have challenges to overcome. Confidence to operate with crypto Overcoming these challenges could give more investors the confidence to invest in cryptocurrencies and gain exposure to the nascent asset class.According to Vogel, fraud is a major challenge for insurers in the cryptocurrency space. Using house insurance as an example, Vogel noted that the “tangible benefit to insurance is that your house can be rebuilt if it burns down.” The net result, he said, is that at the end of the day, people will still have a house. This type of confidence would, at first, come from centralized players in the insurance space, as decentralized solutions aren’t still widespread and may have to improve further before going mainstream.Decentralized insurance solutions have been active over the last few months. Popular decentralized insurance provider Nexus Mutual, for example, currently covers over $400 million in Ether (ETH) across a number of projects, while rival protocol InsurAce claims to have covered over $340 million.The cryptocurrency insurance industry has been growing over time. To Lamesh, its current challenge is for experts to “wrap their heads around the technology involved,” as blockchain “can be confusing enough for its own people without degrees in computer science.”